05 June 2015

Cognitive Capital

'The New Cognitive Property: Human Capital Law and the Reach of Intellectual Property' by Orly Lobel in (2015) 93 Texas Law Review 789 [PDF] comments
Contemporary law has become grounded in the conviction that not only the outputs of innovation—artistic expressions, scientific methods, and technological advances—but also the inputs of innovation—skills, experience, know-how, professional relationships, creativity, and entrepreneurial energies—are subject to control and propertization. In other words, we now face a reality of not only the expansion of intellectual property (IP) but also “cognitive property.” The new cognitive property has emerged under the radar, commodifying intellectual intangibles that have traditionally been kept outside of the scope of intellectual property. This Article introduces the growing field of human capital law at the intersections of IP law, contract and employment law, and antitrust law and cautions against the devastating effects of the growing enclosure of cognitive capacities in contemporary markets. 
Regulatory and contractual controls on human capital—postemployment restrictions, including noncompetition contracts, nonsolicitation, nonpoaching, and antidealing agreements; collusive do-not-hire talent cartels; pre-invention assignment agreements of patents, copyright, as well as nonpatentable and noncopyrightable ideas; and nondisclosure agreements, trade secret laws, and economic-espionage prosecution against former insiders—are among the fastest growing frontiers of market battles. 
Regionally and globally, these disputes heavily shape industrial competition. Through this web of extensively employed mechanisms, knowledge that has traditionally been deemed part of the public domain becomes proprietary. Pre-innovation assignment agreements regularly go beyond the subjects that IP deems commodifiable. They also regularly reach into the future, propertizing innovation that has not yet been conceived. Nondisclosure agreements span beyond traditionally defined secrets under trade secrecy laws and are routinely enforced by courts. Violations of secrecy requirements are also increasingly criminalized, chilling exchanges that are recognized as productive and consistent with professional norms. Noncompete agreements are now required in almost every industry and position, stymieing job mobility and information flows. Beyond the individualized agreements between firms and employees, new antitrust investigations of Silicon Valley giants, including Apple, Google, Intel, eBay, and Pixar, reveal the rise of collusive antipoaching agreements between firms. Postemployment restrictions have become so widespread that they form a cognitive property thicket that curtails efficient recruitment efforts and entrepreneurship. While IP law restricts knowledge and information that cannot be taken out of the public domain, this delicate balance is subverted in the emerging field of human capital law. In patent law, the lines between nonpatentable abstract ideas and patentable inventions are heavily monitored. Most recently, in June 2014, the Supreme Court unanimously ruled that a computer-implemented electronic escrow service for facilitating financial transactions was ineligible for patent protection because the claims were drawn to an abstract idea rather than a patentable invention. Similarly, in copyright law, the boundaries between expressions and ideas are extensively policed to ensure that ideas themselves will not become property. And yet, this Article uncovers how the logic of IP, cautiously maintaining a balance between monopolized information and the public domain, between propertized intangibles and knowledge flow, is undermined by a second, rapidly growing layer of cognitive controls through human capital law. The expansion of controls over human capital has thus become the blind spot of IP debates.
The talent wars are heated. More than ever before, the recruitment, retention, and engagement of employees sit atop businesses’ priority lists,  and yet human capital law remains diffuse and murky. Analyzing the current state of human capital law against new empirical research, this Article challenges orthodox economic assumptions about the need for cognitive property, demonstrates the inadvertent harm from the unrestrained shifts toward such controls, and calls for the recognition of human capital as a shared public resource. The realities of twenty-first-century production and competition, which have changed work patterns and increased the premium on constant innovation, coincide with the accumulation of new empirical insights on innovation and knowledge creation. While these developments are of great significance, legal scholarship on human capital remains surprisingly thin. The traditional and underdeveloped analysis of human capital law views controls over human capital as necessary to generate investment and growth. At the same time, a growing body of empirical evidence indicates that excessive human capital controls have detrimental effects. Law’s role in safeguarding and promoting human capital as a shared resource is little understood. A closer study of human capital law regimes suggests that the most successful regional economies have relied on legal regimes that nurture a cognitive commons, protect mobility, and encourage the densification of knowledge networks. 
The Article proceeds as follows: Part I argues that the contemporary IP debates have obscured the broader ways in which knowledge and the potential to innovate are restricted. The Part presents three interrelated expansions of human capital controls. First, subject-wise, through agreements assigning all innovation “whether patentable or nonpatentable; whether copyrightable or noncopyrightableas well as through developments in trade secret law, the propertization of intangible assets has expanded deep into the intangibility spectrum, enclosing knowledge that falls outside the scope of patent and copyright. The increased criminalization of trade secret protections, far more amorphously defined than other IP pillars, functions to further subvert the boundaries between protectable and nonprotectable knowledge. Second, time-wise, ownership has expanded to future innovation as well as attempts to go back in time and capture prior knowledge that an employee held when joining a firm. The expansion includes a rise in both pre-innovation assignment contracts, including trailer clauses, which reach into the postemployment period to assign IP ownership back to the firm, as well as new legal constructs, including the assignor estoppel doctrine, which prevents assignors from challenging the validity of a patent. The assignor estoppel doctrine dramatically limits the defenses available to former employees who seek to compete in the industry and turns these experienced employees into legal liabilities of the new firms that recruit them. Third, scope-wise, recent years have witnessed a colossal rise in the use of noncompetes along with a shift from individualized controls to metacontrols—cognitive cartels—as evidenced in the ongoing antitrust class action suit against Silicon Valley high-tech giants for their no-poaching agreements. 
Analyzing new empirical research on the nexus between innovation and human capital, Part II uncovers the harms of the new cognitive property by developing a novel taxonomy of different types of knowledge as they relate to human capital flows: tacit, relational, networked, motivational, and disruptive. Each aspect of knowledge helps explain the various harmful effects of the new cognitive property. The Part analyzes these effects of contemporary human capital law through the lens of new economic research about endogenous growth, labor-market search, and innovation networks, demonstrating the extent to which markets benefit from continuous investment in shared cognitive capital. 
Part III argues that the rise in cognitive controls should be understood as the Third Enclosure Movement, turning human capital and intangibles of the mind—knowledge, experience, skill, creativity, and network—into property, with detrimental effects on the public domain. This Part explains these developments in relation to the ongoing shift from viewing IP through the lens of antitrust to the lens of property. The expanding lens of property into the intangibles of the mind has now reached the next frontier, enclosing not merely innovation but the potential for innovation. This Part further shows how regions that promote employee mobility encourage positive spillovers and densification of knowledge networks, which lead to economic growth and innovation, and conversely how regions that restrict employee mobility stifle growth. Finally, this Part demonstrates how the threat of litigation diminishes the quality of human capital and encourages companies to hire employees with no experience rather than seasoned employees. The new cognitive property benefits incumbent firms with superior resources and chills new market entry. The Article concludes with a call to reform human capital law from a nebulous set of harmful doctrines to a body of law committed to the promotion of innovation, knowledge flow, and economic growth.